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Rating Action:

MOODY'S ASSIGNS B2 RATING TO CST INDUSTRIES PROPOSED FIRST LIEN BANK FACILITIES; OUTLOOK STABLE.

02 Aug 2006
MOODY'S ASSIGNS B2 RATING TO CST INDUSTRIES PROPOSED FIRST LIEN BANK FACILITIES; OUTLOOK STABLE.

$120 million of Long-Term Debt Instruments Affected

New York, August 02, 2006 -- Moody's Investors Service has assigned a B2 rating to CST Industries, Inc.'s ("CST") proposed $20 million five-year senior secured first lien revolving credit facility, a B2 rating to its proposed $100 million seven-year senior secured first lien term loan, and a B2 corporate family rating. CST's privately-placed $55 million eight-year senior subordinated notes will not be rated. Proceeds from the term loan facility, the subordinated notes and equity will be used to fund the acquisition of CST by The Sterling Group, L.P., other investors, and management. This is the first time that Moody's has rated the company. The rating outlook is stable.

CST's B2 corporate family rating is largely based on its credit metrics, both on an historical pro forma basis, which represents the increased interest and debt, as well as Moody's belief of stable future performance. The greatest restraints on the rating are the company's small size and the limited free cash flow it is projected to have for debt coverage. The Company's B2 corporate family rating is supported by its secure market position and recent positive financial performance. It is also impacted by Moody's determination that CST will continue to show strong results and maintain revenues and margins. Few companies in the metal storage tank industry rival CST in size, and the company has been able to raise its prices as the price of steel, the primary component in its products, has risen. CST has been able to increase both its gross and operating margins over the past three years. The company has invested significant time and money into creating a glass-fused-to-steel product which would be very difficult for competitors to replicate because the cost of such research and development would likely overwhelm the smaller companies. In addition, CST has a broad customer base, supplying various distinct products to a variety of end markets. These markets tend to be fairly stable and resilient to economic cycles.

CST's stable outlook is supported by its stable operating margins, secure competitive position relative to its peers, and the stability of the metal storage tank industry. Failure to maintain these levels due to weaker than anticipated operating results or an impaired ability to pass on higher input costs could put negative pressure on the outlook and/or ratings. Alternatively, Moody's could consider a ratings upgrade if the company improved upon its cash flow generation and in effect considerably de-levered its balance sheet. Moody's does not expect any major market or competitive changes to occur that would significantly affect CST either positively or negatively in the intermediate term.

Assignments:

..Issuer: CST Industries, Inc.

....Corporate Family Rating, Assigned B2

....Senior Secured Bank Credit Facility, Assigned B2

Headquartered in Kansas City, Kansas, CST Industries is a leading manufacturer and erector of pre-engineered factory coated sectional metal storage tanks, as well as aluminum geodesic domes, and agricultural feed and waste storage systems. CST serves numerous end markets including municipal water and wastewater, fire protection, oilfield, agriculture, industrial liquid, plastics, chemicals, minerals, food, construction materials and energy.

New York
Barry Wadler
Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Glenn B. Eckert
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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